Synergy benefits within Stora Enso exceed expectations

Wed, Jan 27, 1999 09:10 CET

SYNERGY BENEFITS WITHIN STORA ENSO EXCEED EXPECTATIONS
Stora Enso has specified the estimate, published in June, of expected synergy
benefits of the merger, their realisation schedule and the non-recurring costs
of the structural changes.
According to new calculations based on a more in-depth analyses by the
divisions, the annual synergies will amount to EUR 300 million as of 2002,
which exceeds the previous estimates by about 40%. The most significant
advantages will be gained primarily through streamlining of production, in
purchasing and logistics, marketing and administration. Compared with earlier
assumptions, the synergy improvements relate primarily to the streamlining of
production and logistics. The main effects are expected within the product
areas of fine papers, packaging boards and pulp. In 1999, the synergy benefits
will exceed EUR 50 million, in 2000 they are expected to increase to about EUR
170 million and in 2001 to about EUR 240 million.
The write-downs and provisions directly attributable to the merger total
approximately 210 million, of which write-downs of fixed assets account for
EUR 60 million and EUR 150 million relate to reorganisation costs, fees to the
advisors and severance payments.
In addition to the write-downs and provisions attributable to the merger the
company has decided to book in its financial accounts for 1998 additional
provisions and write-downs amounting to EUR 245 million. A large majority of
these relate to potential structural changes to be implemented in the
foreseeable future. In order to cover the effects of these EUR 45 million will
be booked as provisions and EUR 110 million as write-downs on machinery and
equipment. The remaining EUR 90 million are extraordinary goodwill write-
downs, which relate to plants with poor profitability. The value of write-
downs in the company's assets will reduce planned depreciation by about EUR 10
million annually.
During 1999-2002, the estimated reduction in number of employees is about
2000. The merger effects on staffing the head offices and divisional offices
as well as sales companies are expected to be limited to 400-500 people as
reported earlier. The difference is due to rationalisations in other parts of
the company, many of these as a consequence of benchmarking and applying best
practices between the merged companies.
Summary
Provisions before tax will total approximately EUR 455 million and after tax
EUR 370 million and EUR 185 million of the provisions will have a cash effect
over the next two years.
As a result of the provisions, the Group's debt/equity ratio will increase to
a multiple of about 1.13, compared with 1.05 as at September 30, 1998, while
the Group's target is less than 1.0.
The synergy benefits will improve Stora Enso's operating profit by about EUR
300 million as of 2002.
STORA ENSO OYJ
For additional information, please call:
Jukka Härmälä, CEO, tel. +358 2046 21404
Björn Hägglund, Deputy CEO, tel. +46 70 528 27 85
Esko Mäkeläinen, Senior Executive Vice President, Accounting and Legal, tel.
+358 2046 21450
Ingvar Petersson, Senior Executive Vice President, Finance and IT, tel. +46
70 595 7605
Kari Vainio, Executive Vice President, Communications and Investor Relations,
tel. +358 2046 21393, +358 40 500 1063
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